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The Finnish Property Market | 2019
THE FINNISH PROPERTY MARKET 2019
KTI Finland in co-operation with: City of Helsinki; KIINKO Real Estate Education;
Kojamo; LocalTapiola; Newsec; RAKLI; SATO; SEB Group; Sirius Capital Partners;
Skanska and YIT.
The Finnish Property Market | 2019
Contents Preface 7 1 The Finnish economy 8 1.1 The structure of the economy 8 1.2 Outlook for the Finnish economy 10 1.3 Finnish public finances 12 1.4 Demographics 14 1.5 Finland’s international competitiveness 15 1.6 Main city regions in Finland 17 2 Institutional aspects of the Finnish property market 19 2.1 Two forms of property ownership 19 2.2 Market practices of property investment and renting 20 2.3 Planning 22 2.4 Taxation in Finland 23 2.5 Legislation for indirect property investment 27 3 The Finnish property investment market: volumes, structure and players 30 3.1 Investment market in 2018 30 3.2 Ownership structure 31 3.3 Real estate service sector 42 4 Property sectors: market structure, practices and investment performance 46 4.1 The office market 46 4.2 The retail market 51 4.3 Rental residential sector 56 4.4 Public use properties 63 4.5 Industrial / logistics market 65 4.6 Hotels 67 5 Property markets in different regions 68 5.1 The Helsinki metropolitan area 68 5.1.1 Helsinki 70 5.1.2 Espoo 77 5.1.3 Vantaa 79 5.2 Other growth centres: Tampere, Oulu, Turku, Jyväskylä, Lahti and Kuopio 81 The partners of this publication 88
Preface
Positive economic development, a stable and transparent business environment and strong performance
of the property market have attracted international and domestic capital to the Finnish property market
in recent years. The past three years have witnessed historically high transaction volumes, and some two
thirds of all transactions have been carried out by international players. Foreign interest is widespread
among all property sectors, and the Helsinki metropolitan area is recognised as one of the most attractive
property investment targets in Europe.
The Finnish Property Market 2019 discusses the structure, players, market practices and conditions in the
Finnish property investment market. The report aims to satisfy the information needs of international
investors and other players interested in the Finnish property market.
This publication is produced in partnership with 11 companies and organisations representing the Finnish
property investment, development, management, finance and advisory sectors. KTI wishes to thank our
sponsors: The City of Helsinki, KIINKO Real Estate Education, Kojamo, LocalTapiola, Newsec, RAKLI,
SATO, SEB Group, Sirius Capital Partners, Skanska and YIT.
The report is published annually in March. The report is also available in PDF format at www.kti.fi.
KTI Finland also publishes an electronic newsletter twice a month. Finnish Property News covers the latest
news from the Finnish property market. To receive this newsletter via e-mail, please subscribe to it at
www.kti.fi.
We hope you find the report interesting, relevant and worthwhile reading.
Hanna Kaleva
KTI Finland
KTI Finland is an independent research organisation and service company providing information and research services for
the Finnish real estate industry. KTI maintains extensive databases on returns, rents, transactions, development projects,
operating costs and customer satisfaction measures in the Finnish property market. Based on these databases, various kinds of
benchmarking and analysis services can be provided. For more information, please call +358 20 7430 130 or visit www.kti.fi.
7
1 The Finnish economy
1.1 The structure of the economy
Basic facts about Finland
Finland is a well-functioning and stable economy, which is
GEOGRAPHY
a good example of the benefits of globalization, openness
and a market economy. Strong economic growth, innovation
Total area 338,000 square kilometres and structural reforms transformed Finland into one of the
Distances 1,160 km north to south world’s most competitive and prosperous economies during
540 km east to west the late 1990’s and early 2000’s.
PEOPLE Growth of industrial production has had a great impact on
Population 5.53 million the development of the Finnish economy during the past
Density: 18 inhabitants per square decades. Electrotechnical industries played an important
kilometre role in the growth of the Finnish economy during the first
Helsinki 3,012 per square kilometre decade of the 2000’s, although its share of the Finnish
Uusimaa region (southern Finland): exports has declined in recent years. Forestry and paper
170 per square kilometre industries are traditionally strong sectors in Finland, as
Lappi region (northern Finland): well as metal and machinery industries. The importance
2 per square kilometre of chemical industries has also increased significantly in
recent years.
Languages Two official languages:
Finnish, spoken by 88.0%
However, during the past years, the share of industrial
Swedish, spoken by 5.2%
production has decreased, while that of services has
Foreign languages spoken by 6.8%
increased. In 2000, industrial production accounted for
Capital city Helsinki, 645,000 inhabitants 30% of the Finnish GDP, and, by 2016, its share had fallen
Helsinki region, 1.5 million inhabitants to some 20%.
comprising Helsinki and 13
neighbouring municipalities – Espoo
and Vantaa being the biggest
”Exports account for almost 40
Other important Espoo, 280,000
cities Tampere, 232,000
per cent of the Finnish GDP”
Vantaa, 224,000
Oulu, 202,000
Turku, 190,000 Services are currently the biggest sector of the Finnish
Jyväskylä, 140,000 economy, and account for some two thirds of the Finnish
Lahti, 120,000 GDP. Private services make up some 75 per cent of all
Kuopio, 118,000 services, the most important sectors being information
and communication, administration and support, trade,
ECONOMY
transportation, as well as hospitality services.
GDP per capita €40,618 (2017)
Most important Forest and paper industry products In 2017, the total industrial production amounted to some
exporting 20% of total exports in 2017 €86.5 billion, representing a growth of 11% compared to
industries Chemical industry products 19% the previous year. The biggest industrial sector was metal
Metal and engineering industries, which accounted for some 43% of the total
products 14.9% industrial production. The biggest categories within metal
Machinery and equipment 13% industries include mechanical engineering, electronics and
Electronics and electrotechnical electrotechnical industry, metals industry and information
goods 11.9% technology industries. Chemical and forestry industries
both accounted for approximately 20% of total industrial
Currency Euro (since 2002)
production.
History and Independent democracy since 1917
governance Finland is an export driven economy, and changes in exports
Member of the European Union since have a profound impact on the economic development. At
1995 its highest in 2008, exports accounted for some 45% of
Head of State President of Republic, Sauli Niinistö the Finnish gross domestic product. In 2017, the exports
1 The Finnish economy
(since 2012, re-elected in 2018) increased by some 7.5%, and its share of GDP amounted to
38.5% of the GDP. In 2018, the exports of goods increased
Parliament One chamber, 200 members, elected
by some 7%, and the total value increased to €63.8 billion,
for 4 years.
according to the preliminary statistics of the Finnish
Current parliament elected in 2015.
Customs.
Biggest parties: The Center Party
(49 seats), The National Coalition
Party (38), The Social Democratic
Party (35), Blue Reform Parliamentary ”Exports contributed
Group (19), The Finns Party (17). positively to the growth of the
8 New parliament will be elected in economy in 2017 and 2018”
April 2019.
Finnish economic structure
2017
2016
2015
2010
2005
2000
1995
1990
1985
1980
1975
0 10 20 30 40 50 60 70 100 80 90
%
■ Primary production ■ Manufacturing ■ Construction ■ Public services ■ Private services
Source: Statistics Finland
The diversity of Finnish exports has increased in recent
years. In 2017, metal, machinery and transport equipment ”Services account for 30% of
industries accounted for some 37% of the total exports. The
share of forest industry amounted to 20 per cent, and that of
the total exports”
chemical industry to 19%. Electric and electronics industry
products accounted for 12% of total exports. In 2018, the
machinery and vehicle industry products were the largest
exports sector with a share of some 21%. Some 60% of the Finnish exports went to the other EU
countries in 2018. The share of Asia amounted to 15%
The share of services of total exports has increased steadily and North America to some 8% of the total exports. The
in recent years. In 2017, services accounted for some 30% most important target countries of Finnish exports include
of the total exports, and in 2018, the growth in exports of Germany (15%), Sweden (10%), the USA (7%), and the
services exceeded that of industrial products. The biggest Netherlands (6%). Exports to Germany have increased
exporting sector in services is IT services. Other significant significantly in recent years, mainly due to the growth in
exporting service industries include business to business exports of cars. The exports to Russia accounted for some
services like research, engineering or marketing services, 5% of the total exports. At its highest in 2013, Russia’s share
as well as installation and maintenance services related to of total goods exports was as high as 18%.
Finnish machinery and equipment deliveries.
Finnish foreign trade by target area Finnish exports by industry sector
Germany Sweden USA Electric and electronics industry products
Russia Netherlands China Metal industry products
% Machinery and transport industry products
16 Forest industry products
Chemical industry products
14 % Other products
35
12
30
10
25
8
1 The Finnish economy
6 20
4 15
2 10
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Finnish Customs
Source: Finnish Customs
9
1.2 Outlook for the Finnish economy Going forward, the increase in exports is expected to slow
down due to the slowing growth in the global economy as
Finnish GDP growth remained sluggish for almost a whole well as the uncertainty caused by the trade disputes. Also,
decade following the global financial crisis. The impacts of due to the significance of investment goods for the Finnish
global economic downturn were boosted by the coinciding exports, the increased uncertainty in the financial markets
collapse of the competitiveness of electrotechnical industries, deteriorates the outlook. In 2019, the Finnish exports are
challenges in the exports to Russia and the increase in labour forecasted to increase by some 2−3 per cent. Exports will
costs, which decreased the international competitiveness continue to be broadly based with cars, ships, other metal
of Finnish exporting industries. Another challenge slowing industry products and paper and pulp products being the
down the economic recovery is Finnish exports’ emphasis largest product categories. Also the exports of services are
on investment goods, where the growth in demand has expected to develop positively.
accelerated more slowly than in consumer goods.
In the coming years, economic growth will be dependent
However, in 2016, the Finnish economy took a direction on the development of consumption instead of exports or
towards healthy growth, with GDP growth ending up close investments. Private consumption is expected to increase
to 2.5% in 2016 and 2.8% 2017. The absolute volume of by some 1−2 per cent both in 2019 and 2020. Consumption
production finally reached and exceeded the previous peak is supported by improving employment and increasing
level of 2008 in 2018. Finnish exports were supported by earnings. A low inflation rate also supports private
strengthening competitiveness of the exporting industries, consumption, as earnings are expected to increase more
thanks to more moderate labour cost development than than consumer prices. Although inflation is expected to
that of the key competitive countries, as well as an increase moderately, it is still forecasted to remain at only
increase in productivity. Moderate wage increases in most around 1.5 per cent in 2019 and 2020. Consumer confidence
important exporting industries will continue to support the has remained strong, especially with regard to households’
competitiveness also in 2019. own economic situation. Also low interest rates support the
Finnish households’ economic conditions.
In 2018, the Finnish economy continued to grow by some 2.5
per cent. Compared to 2017, economic growth was boosted Active construction has been one of the main drivers of the
more by domestic sectors, while the growth of exports slowed positive economic development in recent years. In 2018,
down compared to the previous year. Private consumption construction investments grew by some 3 per cent compared
grew by some 1-1.5 per cent in 2018, and investments by some to the previous year, while investments in total grew by some
3 per cent compared to the previous year. 3−4 per cent. In 2019, the growth in construction is expected
to come to an end, but no collapse is expected. Construction
investments will be more driven by repair construction, as
”Finnish economy grew by the volumes of new construction are expected to decrease.
some 2.5 per cent in 2018”
1 The Finnish economy
Photo: YIT
10GDP growth in Finland and in the Euro area
% Finland Euro area (19 countries)
8
6
4
2
0
-2
-4
-6
-8
-10
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018**
2019**
2020**
**Forecast
Source: Eurostat, countryeconomy.com, OECD, IMF, Ministry of Finance
Thanks to the strengthening economy, unemployment
”New construction volumes are has decreased in recent years. At the end of 2018, the
expected to decrease” unemployment rate stood at some 7.4%, and it is expected
to decrease well below 7% in 2019. However, due to the
slowing economic growth, as well as the increasing structural
In other investment sectors, moderate growth is expected challenges in matching demand and supply for the workforce
to continue in 2019. However, due to increased global makes a rapid decrease in unemployment unlikely. In some
uncertainty, forecasts on the development of investments industries, the lack of a skilled workforce is already causing
in machinery and equipment, as well as in research and challenges, which is likely to result as increasing wages,
development vary significantly. In most positive forecasts which, in turn, will deteriorate the cost competitiveness of
total investments are expected to increase by some 3−4 per the Finnish industries.
cent in 2019, but in others, the growth is expected to be
only some 1 per cent.
Going forward, the Finnish economy is expected to grow ”Employment rate exceeded
by a stable but slowing pace. The growth will be based on a
continuous but slowing increase in consumption, exports and
72 per cent in 2018”
investments. For 2019 GDP growth forecasts vary between
1.5 and 2 per cent, and for 2020, between 1 and 1.5 per cent.
GDP in 2010 prices and GDP growth
EUR million GDP in 2010 prices GDP growth %
240,000 8
220,000 6
200,000 4
GDP in 2010 prices
180,000 2
GDP growth
160,000 0
140,000 -2
1 The Finnish economy
120,000 -4
100,000 -6
80,000 -8
60,000 -10
2019**
2021**
2017*
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
*Preliminary **Forecast
Source: Statistics Finland, Ministry of Finance 11The current government’s objective to increase employment 1.3 Finnish public finances
rate to over 72 per cent was reached in late 2018, and it is
expected to continue improving in the coming years. Due Thanks to the strengthening economy, Finnish public
to the ageing population, a high employment rate is crucial finances also improved in 2018. The general government
to the Finnish welfare society, and it is generally agreed that in Finland consists of the central government, local
the employment rate should increase further. This is likely to government, and social security funds. Of these, central and
arise discussion about the needed changes in social security local government finances are cyclical and dependent on the
benefits in order to boost employment. fluctuating tax revenues, whereas social security funds are
pension related, and receive more consistent revenue from
both pension payments and investment income.
Consumer confidence indicator
Finland Euro area (19 countries)
15
10
5
0
-5
-10
-15
-20
-25
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: European Commission
Employment and unemployment in Finland
Employed Unemployed
2,800 450
2,700 400
Unemployed, 1,000 persons
2,600 350
Employed, 1,000 persons
2,500 300
2,400 250
2,300 200
2,200 150
2,100 100
2,000 50
1,900 0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Statistics Finland
Key figures – Finnish economy
1 The Finnish economy
2012 2013 2014 2015 2016 2017 2018 2019** 2020**
GDP (change in vol), % -1.4 -0.8 -0.6 0.5 2.8* 2.7* 2.8** 1.5 1.3
Change in exports, % 1.2 1.1 -2.7 0.8 3.5* 7.7* 3.5** 3.1 2.6
Inflation, % 2.8 1.5 1.0 -0.2 0.4 0.7 1.1 1.4 1.6
Unemployment rate, % 7.7 8.2 8.7 9.4 8.8 8.6 7.4 6.9 6.7
Private consumption, % 0.3 -0.5 0.6 1.7 2.0 1.3 2.1** 1.6 1.4
*Estimate **Forecast Source: Statistics Finland, Ministry of Finance, Nordea
12Photo: Unrealer / Kojamo
Finland’s general government finances have remained on Finnish public finances continue to face challenges, and
deficit ever since the global financial crisis. In 2018, public strengthening the public economy requires some structural
finances still remained negative, but the deficit decreased reforms. The Finnish social welfare society is largely based
to some 0.8 of the GDP. Although the deficit is expected to on a comprehensive supply of public services, including, for
continue decreasing in the coming years, general government instance, free education and healthcare, social support for
budgets are likely to remain slightly negative. families in the forms of child allowances for all families and
municipal day-care provision, which is widely used in all
Due to the negative annual budgets, the absolute amount income categories. Extensive public responsibility and tax
of general government debt has increased in recent years. funding are the cornerstones of the Finnish social welfare
However, thanks to the economic growth, the relative share society. As a result, government expenditure currently
of general government debt of the GDP decreased even accounts for some 53% of total production. Public spending
faster than anticipated, and fell below the 60% threshold will be increased as the ageing of the population increases
in 2018. The debt rate is expected to continue decreasing pension payments as well as social service and healthcare
also in the coming years. expenses.
Funding of the welfare society is largely based on a high level
”General government debt of taxation. The current government has been determined
to decrease the income tax rate, partly in order to enable
decreased in 2018 due to moderate wage increases in the labour markets and to
enhancing economic growth” support the international competitiveness of the exporting
industries. Despite a slight decrease in recent years, the tax
Main components of demand, Volume index 1990=100, seasonally adjusted
Exports Total demand Consumption Investment
500
400
300
1 The Finnish economy
200
100
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Statistics Finland
13rate in Finland is among the highest in the OECD countries, One of the most discussed topics around the reform is the
and stood at over 42% of GDP in 2018. In 2017, the Finnish freedom of choice for citizens between public and private
tax rate stood at 43.3%, and was only exceeded by France, service providers. This has also been one of the main reasons
Denmark, Belgium and Sweden. for the delay of the reform. According to the current plan,
the clients’ freedom of choice will come into force in 2023.
Finnish municipalities currently have a significant role in
public services. In the Finnish system, the central government The planned reform has already significantly increased
sets the framework and basic principles of social welfare and the supply of private sector healthcare services, and many
monitors their implementation, whereas most of the actual municipalities have privatised the supply of services either
provision of social welfare is carried out at the local level, in partially or fully. The private sector currently accounts for
municipalities. Municipalities are responsible for the majority some 17% of healthcare and social services, and its share is
of, for instance, education, healthcare and social services. expected to increase to some 25% within the next couple
of years.
There are currently 311 municipalities in Finland.
Municipalities differ from each other significantly with
regard to their size, economic structure and financial ”The reform of social and
position. The smallest municipalities are typically currently
facing the biggest economic challenges due to a negative
healthcare services will have
migration balance and an ageing population, which increases a major impact on property
the cost burden in healthcare services. Therefore, structural investment”
reforms in the municipalities’ responsibilities are essential
in ensuring the sustainability of Finnish public finances.
The reform will also impact the ownership and financing
of public healthcare properties, and more opportunities
”There are more than 300 for property investors will be opened up. Most of these
properties are currently owned by the Finnish municipalities
municipalities in Finland” or municipal federations. The attractiveness of private sector
care property investment has increased markedly in recent
years, and several new investment companies and funds
One of the most significant reforms in the current specialised in this sector have been established. These
government’s agenda is the restructuring of the management companies and funds most often rent the premises for private
and provision of social and healthcare services. The sector service providers.
reform also includes profound development of the regional
government structure. The organisation of healthcare A separate company, Maakuntien Tilakeskus Oy, has been
and social services is planned to be transferred from established to own and manage the buildings needed for the
municipalities to 18 self-governing counties. The reform services affected by the regional reform. The ownership of
is one of the biggest ever administrative restructurings in the properties currently owned by municipal federations,
Finnish history. In addition to healthcare and social services, comprising mainly large central hospitals, has already been
the new counties will be responsible for, for instance, rescue transferred to Maakuntien Tilakeskus. The company will
services, environmental issues, regional development duties also manage all lease agreements of the properties that
and tasks related to the promotion of business enterprise as municipalities have rented from private landlords.
well as planning and steering of the use of regions.
When the regional reform comes into force, counties will
The reform has been delayed several times due to various rent all the properties currently owned and operated by
political and constitutional law challenges in legislative the municipalities for a transition period of three years.
processes. The reform is currently planned to come into Maakuntien Tilakeskus Oy will also manage all these
force in several phases starting from the beginning of 2021. lease agreements and premises. According to the current
This schedule is dependent on the Parliament’s ability to estimates, the company will manage some 18,000 rental
accept the legislation before the current term ends in mid- agreements and 10.5 million sqm of premises with a total
March. If the legislation will be accepted, the first regional worth of some €3.5 billion.
government election should be organized in late 2019.
After the transition period, the counties will define the
premises needed for their service provision in the longer
”The schedule of the reform term. It is expected that some portion of the current
properties would be left vacant after the transition period.
in regional government still However, the amount of excess space and its impact on the
1 The Finnish economy
not confirmed” municipalities’ finances has yet to be defined.
The main objective of the healthcare and social services 1.4 Demographics
reform is improved control over the increasing costs of
services. Productivity of the services is expected to increase Finland is an ethnically homogeneous country, where most
through centralised management, increased competition, as of the population is ethnically Finnish. Even though the share
well as digitalisation and improved information systems for of foreigners of the population has increased in recent years,
healthcare service providers. it is still among the lowest within the EU.
14The Finnish population by age group The Finnish households by size
2014-2065
0-17 18-29 30-64
65-79 80- 1 person 2 persons 3+ persons
% %
50 60
50
40
40
30
30
20
20
10
10
0 0
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2052
2054
2056
2058
2060
2062
2064
1985
1990
1995
2000
2005
2010
2011
2012
2013
2014
2015
2016
2017
Source: Statistics Finland
Source: Statistics Finland
The population of Finland is currently around 5.6 million. The long-term credit ratings for Finland remain strong.
Within the past decade, the population has increased by Standard & Poor’s, Moody’s and also Fitch have all rated
some 0.3-0.4 per cent annually. Population growth is a result Finland in the second best category, at AA+ / AA1. Standard
of immigration, as the number of deaths currently exceeds & Poor’s and Moody’s consider the outlook as “stable”,
that of births. Fertility has decreased in recent years, and the whereas Fitch improved the outlook as “positive” in late 2018.
average fertility rate currently stands at only 1.4. According Finland’s strong institutions and highly skilled workforce
to the current forecasts, the Finnish population is expected to are appreciated by the rating agencies. On the other hand,
increase until 2035, after which the population will decrease, the deficit and increasing indebtedness of public finances
and, by 2050, the total population would decrease under have caused ratings to deteriorate in recent years, and the
the current number. agencies recommend structural reforms in order to address
the challenges caused by the ageing of the population. In
Life expectancy is currently 84 years for women and 78 years current conditions, the Finnish government continues to be
for men, which is the 31st highest in the world. able to acquire funding at a very low cost.
Ageing of the population is currently one of the biggest
challenges of the Finnish economy. The largest age groups ”Finland’s credit ratings
were born after the Second World War, and between
1945−1950 almost or even more than 100,000 babies were
remain strong”
born each year. In 2018, there were only 47,300 births. The
baby boom generations are now retired, which increases the
total dependency ratio, that is, the total number of people In the World Economic Forum’s Global Competitiveness Report,
under 15 and over 65 in relation to working age population. published in October 2018, Finland was ranked in the 11th
The total dependency ratio is currently almost 60, and is position, right after Sweden and Denmark, among the 140
expected to increase to 62 by 2020 and to 66 by 2030. evaluated countries.
The share of those over 65 years of the total population In the ranking, Finland ranks high with regard to the
currently stands at some 22%. By 2030, their share is functioning of its institutional framework, as well as its
expected to increase to some 26%. macroeconomic stability. Within this pillar, the strengths of
Finland are mostly related to the legal framework and judicial
The average size of a Finnish household has been constantly system. Finland is also highly appreciated for the high
decreasing. In 2017, some 75% of Finnish households quality education and training systems. The development
consisted of one or two persons, and the average size of of the financial market, as well as business dynamism and
households is 2.01 persons. In the largest cities, households innovation capacity are other strengths of Finland in this
1 The Finnish economy
are typically smaller, and in Helsinki, the share of single- assessment. Of the assessed pillars, Finland performs worst
person households is currently 48%. with regard to market size and infrastructure. Restrictive
labor regulation was also identified as one problematic factor
for doing business.
1.5 Finland’s international
competitiveness In IMD’s World Competitiveness Ranking of 2018, Finland was
assessed at the 16th position (15th place in 2017). In this
Finland retains its good position in many international rankings ranking, Denmark (7th), Norway (8th) and Sweden (9th), all
that look at various indicators regarding the competitiveness continued to outperform Finland.
of the economy as well as the overall welfare of citizens. 15The most competitive national economies in 2018
Global Competitiveness Index 4.0
0-100 (best)
United States
Singapore
Germany
Switzerland
Japan
The Netherlands
Hong Kong
United Kingdom
Sweden
Denmark
Finland
80 81 82 83 84 85 86
Source: World Economic Forum
In a recent Good Country Index, which measures the variables supporting the citizens’ well-being include income,
contribution of a country to the greater good of humanity, healthy life expectancy, social support, freedom, trust and
Finland was ranked first among 153 countries. In this generosity. Finland also ranks well in comparisons assessing
comparison, Finland performs best in the areas of prosperity gender equality and social coherence.
and equality, planet and climate, as well as in world order,
where it is assessed to contribute a lot in relation to its size. In OECD’s Better Life Index 2018, Finland was ranked
ninth. In this comparison, the strengths of Finland include,
for example, the quality and accessibility of the education
”Finland is one of the most system, environmental quality, safety and the overall life
satisfaction of citizens.
competitive economies in the
world” Among global capitals, Helsinki typically performs well
with regard to its business environment as well as living
conditions. It is considered as one of the safest, most equal,
Finland is widely recognised as one of the least corrupt and honest cities, where it is easy to move and which has
countries in the world. In Transparency International’s Global the most content inhabitants among the European capitals.
Corruption Perceptions Index for 2018, Finland retained third Helsinki also attracts start-up companies and talent, due to
place among 180 countries. In this ranking, Finland was its high level of technology and innovation, and having a
only outperformed by Denmark and New Zealand. The good environment for entrepreneurship. For instance, The
report identified strong access to information systems and Financial Times ranks Helsinki 6th in its ranking of “Global
transparency of institutions as the factors differentiating cities of the future”, where the cities’ ability to attract global
the winners from other countries. In The Fund for Peace’s innovation capital is assessed. In INSEAD’s ranking of cities’
Fragile State Index 2018, Finland retained its position as the ability to attract and retain talented workforce (The Global
most stable country in the world. City Talent Competitiveness Index GTCI), Helsinki was
ranked 3rd among 46 cities.
In its Travel and Tourism Competitiveness Report, World Economic
Forum assesses Finland as the safest country in the world, These rankings illustrate Finland’s reputation as a respected
which also has, according to the Global Competitiveness Nordic welfare economy where political and economical
Report, the least organised crime. Finland’s security and stability, transparent regulatory framework and high-quality
safety are also appreciated, for instance, by the World Justice education and healthcare support business and living. The
Project, World Internal Security and Police Index, as well as Law not-so-positive characteristics of Finland, from a business
and Order Index. perspective in particular, mostly deal with the small size of
the market. High tax rates and restrictive labour regulations
are commonly regarded as the main weaknesses of Finland.
”Finland remains one of
the least corrupt and safest
1 The Finnish economy
countries in the world” ”One of the most transparent
property markets in the
world”
Finland, together with other Nordic countries, typically
performs well in international rankings assessing quality of
living. Sustainable Development Solutions Network ranked The overall business environment is also reflected in the
Finland as the happiest country in the world in its World comparisons conducted in the property markets. The Finnish
Happiness Report in 2018. In this comparison, the key assessed property market is regarded as one of the most transparent
16Main city regions in Finland
Additions to the map by
KTI. OpenStreetMap
Finland web services
Map: Ministry of
Education and Culture.
Data: OpenStreetMap
contributors. Statistics
Finland Open data.
Licensed under CC BY 4.0.
in the world. JLL’s Global Real Estate Transparency Index Currently, there are four city regions with more than 250,000
of 2018 ranked Finland among the few “highly transparent” inhabitants: Helsinki, Tampere, Turku and Oulu. These
European markets. regions generally perform well and show strong economic
development and population growth. The second tier of city
regions – those with more than 100,000 inhabitants – include
”Helsinki was ranked 8th 7 regions: Lahti, Jyväskylä, Kuopio, Pori, Seinäjoki, Joensuu,
and Vaasa. City regions with a population of 80,000-90,000
among the most attractive include Hämeenlinna, Kouvola, Lappeenranta and Kotka-
property markets in Europe” Hamina. There are significant differences in the economic
performance and growth between these city regions.
In Pricewaterhouse Cooper’s and Urban Land Institute’s report Population growth has and is expected to be fastest in the
Emerging Trends in Real Estate Europe 2019, Helsinki improved its Helsinki region, which currently accommodates some 1.5
position, markedly leaping 10 positions to be ranked 8th among million inhabitants. The region comprises 14 municipalities,
European cities. The prospects for both investment (rank 4) and and the main cities in the region include Helsinki, Espoo and
development (rank 13) were assessed as “good”. The position Vantaa, which, together with the smaller city of Kauniainen,
of Helsinki is strengthened, among other things, by the strong form the Helsinki metropolitan area. In recent years, the
performance of the economy, as well as by the rapid population population of the Helsinki region has been increasing by
growth in the metropolitan area. almost 20,000 inhabitants per annum, with net migration
from both other parts of Finland and from abroad being
the main driver for the growth. By 2050, the population
1.6 Main city regions in Finland is forecasted to increase to 1.8−1.9 million. The Helsinki
region currently represents some 27% of Finland’s total
Urbanisation has proceeded fast in Finland in recent years. population, 37% of the country’s total GDP and 32% of
In 1990, some 60% of the Finnish population lived in urban all jobs, even as the land area represents only 1.2% of the
1 The Finnish economy
areas, and by 2017, the share has increased to some 70%. whole country.
The 14 biggest city areas currently represent some 74% of
the Finnish GDP and 72% of all jobs. Outside the Helsinki region, growth is expected to be the
strongest in the Oulu region, whose population is expected
Urbanisation has been and will be a result of both internal to grow by almost 20% – 40,000 people – between 2017 and
migration and immigration. Within Finland, moves are 2040. In the same period, the Tampere region is expected
weighted towards the young or working-age population, to grow by some 15% and the Turku region by some 10%.
which increases the challenges for, for instance, maintenance
of public service provision in regions suffering from negative The 21 largest cities in Finland have recently formed a co-
migration. operation platform, the so called C21 group. The group 17Significance of 21 biggest city regions in Finland, % of total
Helsinki region The regions of Tampere, 21 biggest city regions
Turku and Oulu
Population (2017) 27.9 17.8 77.5
Jobs (2017) 31.2 18.1 78.7
Private-sector jobs (2015) 35.2 18.3 81.9
GDP (2016) 40.0 17.2 82.5
Research and development expenditure (2017) 48.3 28.7 94.9
Completed dwellings (2010-2018) 29.7 21.7 82.5
Source: Statistics Finland
consists of all regional centres across Finland, and all cities weighted towards the largest cities. The Helsinki region
with more than 50,000 inhabitants. These cities comprise alone would represent almost half of the increase.
some 75% of the Finnish population, 78% of jobs and some
88% of value added. Residential construction has been booming in recent years,
especially in the largest cities. In both 2017 and 2018,
residential construction starts amounted to some 40,000
”Helsinki, Tampere and Turku dwellings, which represents a significant growth compared
to the previous years, and is almost twice as much as in 2014.
regions make up the ’growth
triangle’ of Finland”
”Demand for rented housing
The so called “growth triangle” – the city regions of Helsinki,
increases in main cities”
Tampere and Turku – is an important and growing area in
southern Finland. It currently accommodates 49 per cent
of the population and 53 per cent of all private sector jobs, Some two thirds of new housing construction is concentrated
and accounts for 55.5 per cent of the total GDP. It is also in main city regions. In the Helsinki metropolitan area, some
an increasingly connected employment area for 1.5 million 14,500 new dwellings were started in 2017, and in 2018, the
people, where well-functioning public transport has an volumes were even higher.
important role in connectivity and economic development.
Therefore, the development of rail connections between these The growth in construction has been strongest in small
cities are currently discussed actively, and the planning of apartments in apartment buildings. New development is
the so called “hour’s train” connection between Helsinki and boosted by strong investment demand, which will result
Turku has been started by the current government. Also the as increased supply of private rental housing in the main
development of the main rail line northward of Helsinki is on cities. At the end of 2018, almost 9,000 new dwellings were
the agenda of both the current government and the largest under construction in buildings targeted 100% for rental
cities. In late 2018, project companies for boosting these use in Helsinki metropolitan area.
projects were founded by the state, with the aim of committing
both the largest cities and private investors in the development
of the rail infrastructure. The aim is to include these projects
in the next 12 years’ investment budget.
Housing construction in main city
Residential demand in main city regions regions 2009–2018
Increasing urbanisation, demographic development and
changes in housing preferences have a profound impact on
housing markets in Finland. The demand for small, well- ■ Helsinki ■ Tampere ■ Turku ■ Oulu
■ Kuopio ■ Jyväskylä ■ Lahti
located apartments has increased both in owner-occupied dwellings
and rental housing markets, whereas the need for single- 35,000
family houses and large apartments has decreased. In recent
30,000
years, the vast majority – as much as 90% of new housing
construction – has been concentrated in main city regions.
25,000
In its study on residential demand by 2040, published in
1 The Finnish economy
20,000
2015, the VTT Technical Research Centre of Finland based
its forecasts on two different scenarios. In both scenarios, 15,000
1.6
the Finnish population is estimated to grow to 5.8 million
by 2040. In the “conservative” scenario, population growth 10,000
estimates are based on current regional structure. In the
“urbanisation” scenario, migration to 14 main city regions 5,000
is estimated to accelerate, resulting in an increase of some
625,000 inhabitants by 2040. In these regions, almost 0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
29,000 new dwellings would be needed annually. In this
18 scenario, the increase in residential demand would be heavily Source: Statistics Finland2 Institutional aspects
of the Finnish property
market
2.1 Two forms of property ownership legislation for limited companies as the regulatory framework
for the company. The Act regulates, for instance, long-term
In juridical terms, owning property in Finland means owning planning of repairs and the communication of these plans
the land and the buildings on it. This is the basic form of to shareholders, as well decision-making procedures and
direct property ownership. It is also possible to own only responsibilities of shareholders.
the building and have a long-term lease agreement with the
landowner, typically the municipality. Direct ownership and In mutual real estate companies, rental agreements are made
land lease agreements are registered with the Land Register between the shareholder and tenant, and the rental cash flow
maintained by regional District Survey Offices. goes directly to the shareholder. Shareholders can use their
shares in the company as collateral for loans.
Transactions with real property are official legal acts that
have to be carried out according to a specific procedure. The mutual real estate or housing company is responsible
These transactions are public in nature and are registered for the management of the property and upkeep of joint
and published by the National Land Survey of Finland. facilities, for which it collects a maintenance fee from the
shareholders. This fee is most typically based on the floor
In practice, it is very common for property ownership to area designated for each shareholder.
be organised through a limited company (a real estate/
housing company) founded for the sole purpose of owning The company itself can also take out a loan, for example,
the property. In these cases, the legal owner of the real for renovation and modernisation, and use the building and
estate is the limited company, which may have one or several real estate as collateral. In these cases, the shareholders pay
shareholders. The shares may be connected to a specific a finance charge to the mutual company, which then covers
apartment/amount of space on the property, entitling the the loan to the original lender.
shareholder to physical control and occupancy of these
premises. These types of companies are called mutual real The other type of real estate company is a standard limited
estate companies (“MREC”s; keskinäinen kiinteistöyhtiö). This company (kiinteistöosakeyhtiö), founded for the purpose of
form of ownership is commonly used in both residential and owning a certain property or properties. In these companies,
commercial properties. the shares are not connected to any specific premises.
Rental agreements are made between the tenant and the
The Housing Companies Act and Decree regulates mutual company, and the company is responsible for maintenance
real estate companies that operate in the housing sector and operating costs, which it covers with the rental income.
(asunto-osakeyhtiö). These regulations are always applied The real estate company can pay out dividends to its
when more than 50% of the area of the building is designated shareholders.
for residential use. When establishing a mutual real estate
company for commercial property, shareholders can choose
either to apply the Housing Companies Act or the normal
2 Institutional aspects of the Finnish property market
Photo: Skanska
19Impact on market practices selling real estate, but as real estate transactions are subject
Owning property through a mutual real estate company is a to certain provisions, it is advisable to use real estate brokers
more flexible form of ownership, for example in cases where or lawyers when entering into property transactions.
the ownership of a building is divided among several owners.
The transfer tax rate is also lower: 2% on the shares of the Transactions with housing or real estate company shares are
limited company versus 4% on direct property. Transactions straightforward and simple. As soon as transfer taxes have
are also less complicated compared to direct ownership of been settled, the purchaser can be registered as the owner
real estate. of the shares in the company’s registers.
The decision-making and management procedures of a Finnish legislation regulating rental agreements is among
mutual real estate company are defined in the company’s the most liberal in the world and is based on the idea of
articles, which have to fulfil certain requirements set by full freedom of agreement between two parties. There are
law. An individual owner’s degree of control depends on no minimum or maximum lease terms, indexation is not
their share of ownership, unless otherwise agreed in the regulated, there are no automatic rights for renewal, and
company by-laws. break clauses are possible if agreed. Only in the residential
market do some restrictions exist to protect the tenant, but
Due to its flexibility and transparency, the mutual real even there, the legislation has very few restrictions compared
estate company is a common way to organise the ownership with most other countries.
and management of property. In practice, the majority of
commercial property transactions in the Finnish market are
made by transacting the shares of real estate companies. 2.2 Market practices of property
These transactions are not public by law. investment and renting
Property investment
”A new digital share register Developments over the last decade in the Finnish property
market – which includes the emergence of new players,
for MREC shares was increased internationalisation, professionalism and more
established in 2019” sophisticated analysis – have resulted in new practices in
property investment processes. This has also increased the
demand for specialist services in property transactions.
In the beginning of 2019, new legislation concerning digital
share register for mutual real estate companies came into The ways transaction processes are carried out partly
force. From now on, all shares of new mutual real estate depend on the market situation. In recent years, high
companies will be only in digital form, and registered in a investment demand has encouraged sellers to carry out
newly established share register maintained by the National extensive auction processes in order to find the best
Land Survey. Shares of old mutual real estate companies will solution. In quieter market conditions, tailored approaches
be transferred to this digital register starting from May 2019. to identify the potential buyer are more common. Off market
In the future, both the ownership and all transfers of shares procedures are also applied when the seller aims at a faster
will be registered in this electronic register and physical and smoother transaction process.
share certificates will no longer be needed.
The role of the advisor or property agent in the investment
Legislation concerning renting and process varies depending on the situation, characteristics of
transactions the asset and type of companies involved. In large portfolio
Generally speaking, the Finnish legal system is simple and transactions, the parties typically use extensive advisory and
2 Institutional aspects of the Finnish property market
liberal. In principle, there are no restrictions on buying or corporate finance expertise, and implement thorough due
Photo: Kojamo
20Distribution of office lease In KTI’s rental database, measured by the number of
agreements in the Helsinki agreements, some 50% of all office agreements in the
metropolitan area, sqm Helsinki metropolitan area are indefinite. Another 25%
of the agreements first have a fixed term of, for example,
3 or 5 years, after which they continue automatically for
an indefinite period – until further notice from either of
42% 34% the parties. Indefinite lease periods are typically applied in
■ Fixed term smaller premises, and in larger agreements fixed terms are
■ Fixed + until further notice
■ Until further notice
more often used. Despite their flexibility, indefinite leases
often last for long periods.
24% When fixed terms are used, the contract periods are
typically quite short compared with many other countries.
In multi-tenant office buildings, a typical fixed term is from
Source: KTI Rental database three to five years.
For larger and purpose-built units, longer fixed-term
agreements are commonly applied. For a single-tenant
office building, a net lease of ten years or more is common.
diligence procedures. In single asset transactions, newly Agreements in large single-tenant buildings in, for example,
developed assets and transactions carried out between two sale-and-leaseback arrangements, often have lease terms of
domestic parties, the advisors’ role is typically more limited. up to 20 years.
The current market conditions have also brought about Tenants’ rights are quite limited in the commercial property
new types of players in the market. In recent years, several market – for example, a tenant has no statutory right to a
new companies have been established, offering hands-on lease renewal.
management services as well as sometimes acting as co-
investors. These companies mainly serve foreign investors Traditionally, rental agreements are for “gross rent”, which
but also work with domestic institutions that are willing to includes net rent plus a service charge covering typical
reorganize their property holdings. operating costs and minor repairs.1 Gross rents are very
common in multi-tenant buildings in all property types.
Market entry of international investors and domestic Measured by number of agreements, some 85% of office
funds has brought about new approaches to due diligence agreements in the KTI rental database are for traditional
processes, with typically several types of experts – legal, gross rent.
technical, financial and tax advisors – working together.
This has resulted in an increased supply of these services In many cases in the remaining 15%, the landlord recharges
in the market. the maintenance cost separately to the tenant. This both
encourages the tenants to save on costs and hedges the
Rental practices landlord against the increases in operational costs.
Rental practices vary in the Finnish commercial property
market. The liberal legislation regulating leases gives parties
freedom to agree on terms and conditions. ”Gross rents are commonly
applied”
2 Institutional aspects of the Finnish property market
”Typical Finnish rental
agreements provide flexibility Separate recharging of maintenance costs is also very typical
for tenants” for shopping centres, where also a separate service charge for
marketing and other shared expenses is typically recharged
to tenants.
A common term in Finnish lease agreements is “until further
notice”: an indefinite contract is valid until either the tenant In single-tenant buildings, it is more common to apply net
or the landlord wishes to terminate it after an agreed notice rents, where the tenant is responsible for maintenance costs.
period, which is typically three, six or twelve months. These In net rents, the responsibility for taxes, insurances and
indefinite lease terms are especially popular in multi-tenant refurbishments can be agreed freely between the parties.
office buildings and smaller spaces. The landlord must,
however, have an acceptable cause to terminate the contract. Rents can be indexed freely in all indefinite leases and in
Rent adjustment, tenant mix changes, or rearrangement of fixed-period leases where the term exceeds three years. The
the property portfolio are among the conditions used to Consumer Price Index is the most commonly used index.
justify lease termination.
1 Gross rents are where the land rent, insurance, property taxes and operational expenses are paid by the owner. This means that management and maintenance
costs for both indoor and outdoor areas of the building are the owner’s responsibility. This is also the case with heating, water and waste disposal. With regards
to cleaning and electricity, the owner is typically responsible for the public areas of the building, and tenants have their own electricity and cleaning agreements
regarding the space they use. The owner is responsible for repair and replacement costs if caused by normal wear and tear.
21Types of lease agreements in shopping 2.3 Planning
centres, share of lease agreements
Land use in Finland is regulated by the Land Use and Building
3%
Act. The system has three levels of land use plans: a regional
land use plan, a local master plan and detailed local plans.
Further provisions and guidelines concerning building are
36%
■ Base rent issued in the National Building Code of Finland, which was
■ Base rent + turnover-based share reformed as of beginning of 2018.
■ Only turnover-based rent
61% National principles for land use and regional structure are
defined by the Council of State. These national principles of
land use are reflected in the regional plans, which embrace
structural, functional and environmental considerations.
Regional plans are drawn up and approved by Regional
Source: KTI Rental database
Councils.
Regional plans and steering of land use is one of the tasks
In shopping centres, the majority of rental agreements are that will also be moved to the new 18 counties in 2021 if the
turnover-based. More than 50% of all shopping centre lease legislation will be passed by the current Parliament. They
agreements in the KTI database consist of a minimum base will take over the tasks of the current ELY centres (Centres
rent supplemented by an agreed share of turnover. However, for Economic Development), which currently promote and
the turnover-based part of the rent is typically quite low, steer planning and land use, as well as Regional Councils,
as the landlord wants to secure a stable base for their cash- who are currently responsible for regional plans.
flow. In some 6% of all agreements the rent is solely based
on the tenant’s turnover. The local master plan is an instrument for guiding and
coordinating land use at a general level. It is produced by
local authorities, but needs to follow the guidelines of the
”Shopping centre rents are regional plans. Detailed local plans are used to regulate
the building and formation of the physical townscape.
typically turnover-based” In addition, every local authority has its own building
ordinance, the content of which is defined according to local
In shopping centres, fixed term contracts are commonly needs. In the current act, local authorities have extensive
applied, especially in larger premises. Fixed term contracts powers to make independent decisions in land use planning
represent some 75% of the number of agreements and 84% matters.
of the total retail space in the KTI database.
The Land Use and Building Act obligates municipalities to
In over-supply situations, various means to attract and adopt an open and interactive approach to planning. The
retain tenants can be applied. For instance, landlords may local planning process is aimed at facilitating the involvement
offer rent-free periods, stepped rent increases and tenant of all those concerned in planning: landowners, residents
improvements for new tenants, among other things. This was and businesses in the area.
clearly seen, for instance, in the Helsinki metropolitan area
office markets during the sluggish economic development. Building permits are approved by municipalities. A building
However, the impact of these terms on the overall rental permit may be granted if the plan allows the type and size of
levels and markets is very difficult to capture in statistics. building that is being applied for. Special permits to exceed
2 Institutional aspects of the Finnish property market
Typical leasing practices in Finland
Sector Shopping High street Super- Offices, Offices, Industrial, Residential
centres shops markets multi-tenant single-tenant logistics
Lease term 5-15 3-10 / until 10-15 3-5 / until 10-20 5-15 Until
further notice further notice further notice
Basis for rent Space area / Space area Space area Space area Space area Space area Space area
turnover
Rental payments Monthly Monthly Monthly Monthly Monthly Monthly Monthly
Indexation Cost of living Cost of living Cost of living Cost of living Cost of living Cost of living Cost of living
Rent review Annually Annually Annually Annually Annually Annually Annually
Internal repairs Tenant / Tenant Tenant Tenant / Tenant Tenant Landlord
landlord landlord
External repairs Landlord Landlord Tenant Landlord Tenant Tenant Landlord
Building insurance Landlord Landlord Tenant Landlord Tenant Tenant Landlord
Property taxes Landlord Landlord Tenant Landlord Tenant Tenant Landlord
The cost-of-living index 1951:10 = 100 is a long time series calculated from the latest consumer price index (currently consumer price index 2000 = 100) and its
development, therefore, follows the consumer price index. Many rents, such as those on dwellings, business premises or land, are usually tied to the cost-of-living index.
From the user’s point, the cost-of-living index is the most usable one, because index revisions do not interrupt the series and the point figures of the cost-of-living index are
published monthly at the same time as the consumer price index. (Statistics Finland)
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